Bank of America Is Warning That the AI Boom Is Starting to Look Like a Classic Boom-and-Bust Cycle
The capital cycle playbook
Bank of America is warning that the AI boom is starting to look like a classic boom-and-bust cycle. The warning signs: surging spending, intensifying competition and falling prices.
In a note to clients Friday, BofA investment strategist Sebastian Raedler argued the AI buildout is following the same capital cycle that ran through railways, telecommunications and the internet: strong early returns attract a flood of capital, the flood creates excess capacity, capacity crushes prices, and investors end up disappointed even when the technology itself delivers.
The spending numbers explain the concern. The 12-month forward consensus for hyperscaler capital expenditure has climbed from $330 billion in early 2025 to roughly $1 trillion, on the order of 3% of U.S. GDP, a heavier investment intensity than the 1870s railway boom or the 1990s dot-com era.
Prices are already falling
The bust mechanics are visible in the present tense. Average AI token pricing has plunged roughly 50% since the summer, eroding the revenue earned on each unit of compute, and business spending trackers show U.S. corporate spending on AI applications flattening slightly since August even as usage rises.
"This monetization disappointment in the face of intense competition is precisely the failure mode seen in past capital cycles," Raedler wrote. "Most major capital cycles of the past have ended in disappointment, even though the underlying technology often lived up to expectations."
The market has started to vote. The Philadelphia Semiconductor Index has fallen for seven consecutive sessions and sits around 13% below its recent high, and by June the U.S. hyperscalers were already trailing the S&P 500 by nearly 15% year-to-date as investors questioned whether the returns on all this spending will ever materialize.
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Options market and stocks to watch
BofA's argument is not that AI fails. It is that the returns accrue to fewer winners than the spending assumes, which makes the hyperscalers the fault line. MSFT, GOOGL, AMZN and META are writing the trillion-dollar checks, and their options will price every capex headline from here.
The chip complex is the higher-beta version of the same trade: NVDA, AVGO and AMD, or the basket through SMH, which is already seven sessions into a slide. Falling token prices are the fundamental tell to track, because they hit the revenue side of every model built on scarce compute. And yes, BAC published the warning, which makes its own flow worth a glance. Follow AI capex headlines on the Unusual Whales news feed.
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